What is corporate governance after all?Robin Banerjee, Caprihans India Limited

2nd January, 2017

Tonnes of written analysis and hours of TV debates are taking place to evaluate the right and wrong of the squabble between Ratan Tata and Cyrus Mistry. This brings to the question – why so much raucous about corporate governance?

My family watches their daily dose of soap operas through Tata Sky. Several of my friends drive to work in Tata Indica and uses Tata Docomo Photon for data usage. Are they concerned about the fight at the very top of Tatas? Does any customer care to find out whether the company is run well, pays all its taxes and behaves well with its employees?

Tonnes of written analysis and hours of TV debates are taking place to evaluate the right and wrong of the squabble between Ratan Tata and Cyrus Mistry.

This brings to the question – why so much raucous about corporate governance?

Customer is the king

Organisational governance is all about running a business well. The major objective is to ensure that the products produced or services rendered to customers are in accordance with customer expectations, delivers what was promised, have consistent quality and price fairly. If these deliverables are delivered, it does not matter to me whether the company bosses are bickering or not.

It may however be noted that if the organisation is not run well and there is management infighting, it is impossible to render customer satisfaction. Quality goods and services can emanate from an organisation only if it has a defined chain of control, appropriate systems and processes and an ethical value system.

Corporate Governance is all about delivering value to the customers – for whom a business in reality exist.

Other stakeholders cannot be ignored

The other important objective for good corporate governance is to ensure employees are fairly treated and looked after. If workforces are kicked around, no company can ever produce quality goods or provide decent after-sales-service.

The last but not the least, governance principle of an organisation is to pay all its stakeholders their dues on time. This would include taxes and levies, vendors and of course the employees.

The main objective of a business venture is to maximise share-holder value. This cannot be boosted unless products and services are not up to the mark, employees are not treated well and dues are not paid.Corporate governance popularly means having the right number of Board members, holding its meetings on time, maintain and file proper minutes, accounts and records. In reality however, the principle of corporate governance actually implies running a company well and proper.

Governance in India

Let us now look at some current governance-related issues in India.

Recently, US retail giants like Target alleged Welspun India substituted Egyptian cotton with a cheaper variant of cotton while supplying it bedsheets, manufactured between August 2014 and July 2016. A possible failure of internal systems and processes. It would have resulted in brand reputation impairment including negative impact on Indian textile brands internationally.

Let us now focus on the ongoing Tata Group mess arising out of Cyrus Mistry being summarily dismissed on October 24, 2016. Since then he has waged a campaign saying serious corporate governance failings at the group. This wrangle has already led some of Tata’s top echelons spending enormous quantum of time, energy and resource on damage control, diverting attention from running the businesses, which is the primary purpose of any business organisation.

Whatever be the outcome in the group and whoever is right or wrong, the bottom line is - should the CEO be fired overnight, without providing an opportunity of being heard? Will you fire a colleague of yours without providing any reason whatsoever? If you feel that you may, then your views are stacked in favour of Ratan Tata group and corporate governance has not been compromised.

The recent episodes of product substitution on Indian textile exports and the Tata Board-room squabble have led to the debate of corporate governance afresh within the Indian business fraternity.Will Welspun brand image remain intact in the world of textiles? Will the Tata-name take a beating in consumers mind?

Governance is an ethos

The Companies Act and Rules have loads of provisions to ensure satisfactory running of companies. However, the truth is that even the most commendable regulatory fixes and policy guidelines are not half as significant as the quality of the people involved.

Most of you would have noticed that ethics and governance is a matter of top-down philosophy. If the Chairman, CEO or the Board believes in good governance, it works. Or else, it is empty vessel making loads of noise.

If the quality and customer service of Tata products and ‘Spaces’ (a Welspun brand) bed-linens remain unaffected, then the corporate governance of the organisations are remaining intact. Should however the product deliverables suffer, then their corporate governance needs to be beefed up.

Governance of organisations after all is not about ticking the boxes of legal requirements. It is all about delivering customer satisfaction and continuing to enjoy their confidence.

(Views expressed in this article are personal)

DISCLAIMER: The views expressed are solely of the author and ETCFO.com does not necessarily subscribe to it. ETCFO.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.

Robin Banerjee is the Managing Director of one of the oldest and largest Polyvinyl chloride (PVC) film manufacturers - Caprihans India Limited. He has also written a book on corporate fraud and keeps contributing to various magazines and online portals.

Robin Banerjee is the Managing Director of one of the oldest and largest Polyvinyl chloride (PVC) film manufacturers - Caprihans India Limited. He has also written a book on Show more.. corporate fraud and keeps contributing to various magazines and online portals.

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